TECO Guatemala Holdings, LLC v. Republic of Guatemala

Case summary

At a glance

Parties: TECO Guatemala Holdings, LLC (United States; wholly owned by TECO Energy, Inc.) v. Republic of Guatemala
Case no.: ICSID Case No. ARB/10/23 (the cover of the 2013 Award prints ARB/10/17)
Forum and rules: ICSID Convention; ICSID Arbitration Rules 2006; annulment hearings at ICSID Washington, D.C.; third annulment hearing in London
Treaty: Dominican Republic–Central America–United States Free Trade Agreement (DR-CAFTA), Article 10.5
Tribunal: Original Tribunal: Alexis Mourre (President), William W. Park, Claus von Wobeser. First ad hoc Committee: Bernard Hanotiau (President), Tinuade Oyekunle, Klaus Sachs. Resubmission Tribunal: Vaughan Lowe (President), Stanimir Alexandrov, Brigitte Stern. Third-annulment ad hoc Committee: Deva Villanúa (President), Lawrence Boo, Doug Jones
Court: US District Court for the District of Columbia (Judge Randolph D. Moss); Supreme Court of the State of New York (recognition filing)
Sector: Electricity distribution; tariff regulation
Outcome: Guatemala was held to have breached fair and equitable treatment, and USD 21,100,552 was awarded (2013). The loss-of-value, pre-sale interest and costs rulings were annulled (2016). On resubmission, a majority awarded a further USD 26,793,001 plus USD 838,784 in pre-sale interest (2020). The US courts confirmed and enforced the unannulled award.
Amount: Claimed: USD 243,585,335 (USD 21,100,552 historical losses plus USD 222,484,783 loss of value). Original Award: USD 21,100,552 plus interest at US Prime + 2% from 21 October 2010, and USD 7,520,695.39 in costs. Annulment: Guatemala to repay TECO USD 273,652.39, plus half of ICSID costs on TECO's application. Resubmission Award: USD 26,793,001 and USD 838,784 as at 21 October 2010, plus interest at US Prime + 2%, and 75% of the original-phase costs. Supplementary Decision: USD 7,520,695.39 plus interest at US Prime from 19 December 2013. US judgment: USD 35,036,448 as of 4 November 2019.

The dispute

TECO Guatemala Holdings, a Delaware subsidiary of TECO Energy, held an indirect interest in Empresa Eléctrica de Guatemala, S.A. (EEGSA), Guatemala's largest electricity distributor. It held this interest through the DECA II consortium with Iberdrola and Electricidade de Portugal. Every five years the regulator, the CNEE, set the Value Added for Distribution (VAD) component of EEGSA's tariffs. For 2008–2013 it dissolved the Expert Commission, disregarded the Bates White VAD study and imposed tariffs based on its own Sigla study. TECO claimed this arbitrary conduct breached the fair and equitable treatment standard in DR-CAFTA Article 10.5. It sought lost cash flow up to the October 2010 sale of DECA II to EPM, and the lost value at which it sold its stake. Guatemala argued that the dispute was a mere regulatory disagreement under domestic law, that the Tribunal could not review decisions of the Guatemalan Constitutional Court, and that the Iberdrola tribunal had declined jurisdiction over the same facts.

Key holdings

The Tribunal had jurisdiction under DR-CAFTA. Guatemala breached fair and equitable treatment (Article 10.5) because the CNEE did not observe due process in the 2008–2013 tariff review. Award ¶ 780(A)–(B)
Historical losses run from the first receipt of the higher revenues until the sale. They are measured on the basis of the Bates White study of 28 July 2008, and amount to USD 21,100,552. The loss-of-value claim (USD 222,484,783) was rejected as speculative: there was no sufficient evidence that the EPM sale price would have reflected higher tariffs. Interest at US Prime + 2%, compounded annually, runs only from 21 October 2010. Award ¶¶ 742, 749–761, 765–768
Costs follow the event. Guatemala bears its own costs and pays 75% of TECO's costs, i.e. USD 7,520,695.39. Award ¶¶ 777–779
The ad hoc Committee annulled three parts of the Award: the decision on loss-of-value damages, for failure to state reasons (Article 52(1)(e)); the decision on interest on historical damages for 1 August 2009 to 21 October 2010, for serious departure from a fundamental rule of procedure (Article 52(1)(d)); and, as a consequence, the decision on costs. It dismissed all other grounds, including all of Guatemala's challenges to jurisdiction and liability. Decision on Annulment ¶ 382
Annulment costs. On TECO's application, each party bears its own legal costs and the Committee's costs are shared equally, because the errors were the Tribunal's. On Guatemala's application, Guatemala bears the ICSID costs and pays 60% of TECO's legal costs (USD 273,652.39). Decision on Annulment ¶¶ 376–381
On resubmission, the Tribunal awarded by majority the cash-flow shortfall from 21 October 2010 to 31 July 2013 (USD 26,793,001) and pre-sale interest at the agreed 8.8% WACC rate (USD 838,784), both as at 21 October 2010, with interest at US Prime + 2%. One member considered that the unannulled ¶ 766 of the Original Award bound the Tribunal to apply a risk-free rate. Resubmission Award ¶¶ 132–138, 155
Supplementary Decision: the 75% costs award for the original proceedings is treated as owing from 19 December 2013. It bears interest compounded annually at the US Prime rate, a non-commercial rate chosen by majority. Supplementary Decision, Part VI
The D.C. District Court held that the annulment left the USD 21,100,552 award and interest from 21 October 2010 intact and immediately enforceable absent a stay. It rejected Guatemala's arguments on issue and claim preclusion (based on Iberdrola), on finality, and for discovery and a stay. Memorandum Opinion (1 October 2019), pp. 17–23

Procedural history

13 January 2009TECO filed its Notice of Intent under DR-CAFTA.
20 October 2010TECO filed its Notice of Arbitration.
19 December 2013Award: breach of fair and equitable treatment; USD 21,100,552 plus interest and costs awarded; loss-of-value claim rejected.
22 April 2014ICSID registered both parties' annulment applications (filed 18 April 2014). The ad hoc Committee was constituted on 29 May 2014.
10 February 2015The Committee continued the stay of enforcement without requiring Guatemala to post a bond.
5 April 2016Decision on Annulment: partial annulment on loss of value, pre-sale interest and costs.
16 January 2017TECO petitioned the US District Court for the District of Columbia to confirm the award. The court denied Guatemala's motion to dismiss on 30 September 2018, granted summary judgment on 1 October 2019 and entered final judgment on 4 November 2019.
13 May 2020Resubmission Award, by majority: further damages of USD 26,793,001 and USD 838,784 in pre-sale interest.
16 October 2020Supplementary Decision awarding interest on the original-phase costs.
12 February 2021Guatemala applied to annul the Resubmission Award, alleging that arbitrator Stanimir Alexandrov lacked independence because of undisclosed ties with TECO's expert Brent Kaczmarek. The stay of enforcement was confirmed on 17 May 2021. A hearing was set for 27–28 July 2022 in London. The case list includes an Order Taking Note of the Discontinuance of the Proceeding dated 24 January 2023, whose text is not included.

Tribunal, counsel and experts

Decided by: Alexis Mourre President
William W. Park Co-arbitrator
Claus von Wobeser Co-arbitrator
Bernard Hanotiau Committee president
Tinuade Oyekunle Committee member
Klaus Sachs Committee member
Vaughan Lowe President, Resubmission Tribunal — appointed by the institution (appointed by the ICSID Secretary-General)
Stanimir A. Alexandrov Co-arbitrator, Resubmission Tribunal — appointed by the claimant (Guatemala alleged lack of independence in the third annulment proceeding)
Brigitte Stern Co-arbitrator, Resubmission Tribunal — appointed by the respondent
Deva Villanúa Committee president — appointed by the institution
Lawrence Boo Committee member — appointed by the institution
Doug Jones Committee member — appointed by the institution
Randolph D. Moss Judge, US District Court for the District of Columbia
For the claimant: White & Case LLP · TECO Energy, Inc.
For the respondent: Freshfields Bruckhaus Deringer · Arenales & Skinner-Klée · Dechamps International Law · GST LLP · Procuraduría General de la Nación · Ministry of Economy of Guatemala
Experts: Brent C. Kaczmarek (claimant) · Rodolfo Alegría Toruño (claimant) · Juan Luis Aguilar Salguero (respondent) · Manuel A. Abdala (respondent) · Marcelo A. Schoeters (respondent) · Mario C. Damonte (respondent)